One of the most celebrated figures in the history of the computing industry, and a founding father of the internet, has taken aim at Australia's attitude to venture capital, describing local investors as "greedy" and "nasty", accusing them of imposing excessive terms when backing domestic technology entrepreneurs.

Gordon Bell, 81, who has been described by The New Yorker as the "Frank Lloyd Wright of Computing" and is known for his eponymous theory that predicted the evolution of computing technology, has invested in more than 100 start-ups, including a handful in Australia, where he says venture and angel investors remain incredibly risk-averse. Worse, it's stunting the growth of local start-ups and forcing many offshore.

"It's almost worse than getting money from a bank," Bell tells AFR Weekend from his apartment on the edge of Sydney's CBD, where he spends four months each year.

Bell, who otherwise lives in San Francisco, was a pioneering engineer and executive in "minicomputers" – the cabinet-sized predecessors to PCs that emerged in the 1960s to replace mainframes made by the likes of IBM, which cost millions of dollars and could occupy an entire room. In 1987, he led the cross-agency group as head of the US National Science Foundation's Computing Directorate that made the plan for the internet.

More recently, he worked at Microsoft during that company's heyday in the '90s and 2000s as a researcher emeritus, where he was a sounding board for its former chief executive, billionaire Steve Ballmer.

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What disappoints Bell about the venture funding community in Australia, which up until recently was small and obscure, is not only a lack of capital compared with countries such as the United States and Israel, but the onerous terms imposed on start-ups by gun-shy investors, who demand huge equity stakes for relatively small investments in fledgling companies.

"I can't tell you how bad the whole Australian venture community is, the angel community is, they are just nasty," Bell says. "They are greedy. They are not giving back. The people who make money, to me, have tremendous responsibility to give back."

Bell is also critical of Australia's university system, saying while it attracts world-class talent and produces world-class research, it needs to work more closely with business to commercialise technology and inventions.

Australia is listed by the Organisation for Economic Co-operation and Development at a lowly 29th out of 30 countries on the strength of its links between business and industry.

"The university system here has always been focused on research papers," Bell says. "Papers are important in the whole innovation thing, but unless you have some mechanism to commercialise … basically it's like you are mining all this gold, the gold is sitting there and people can just come along and pick the gold up."

One such example of a missed opportunity, he believes, is in solar technology. UNSW's School of Photovoltaic and Renewable Energy Engineering spawned the Chinese solar company Suntech, which was initially successful and then failed. Students there also produced the world's fastest solar-powered electric car.

"The University of NSW has been incredibly strong in the silicon for solar, electro voltaic stuff, and guess what … it's all being manufactured in China," Bell says.

Start-up skinned

Bell says he was recently involved in a funding round for an Australian tech start-up, which he declines to name. He says this start-up was perilously close to being "taken to the cleaners" by local investors.

"We were just about to close a reasonable round and, at the last minute, the technical founder was reading the fine print" after the term sheet had been agreed. "And it has a clause in there that said a change of control would allow the venture capital investors to get all of their money back."

Such clauses are common in venture funding rounds in the US and they're increasingly being blamed for inflating start-up valuations.

"It was obscene," says Bell, who convinced the company not to agree to the deal. "They [local investors] are behaving almost like bankers, 'we are going to get our money back one way or another'."

He was shocked at the amount of equity local investors demanded in exchange for what was a relatively small investment.

"I view it as an earth-shaking company, and a bunch of guys were going to take 40 per cent of the company for nothing," he says.

It reflects a lack of competition between VC funds for investments into start-ups. Potentially, this could soon change.

In the current financial year, $600 million of new venture capital funding has been committed or planned in Australia, which is the highest since 2006, according to the Australian Private Equity and Venture Capital Association (AVCAL).

Silver lining

The notable newer funds that have been established include a $200 million fund from Square Peg Capital, which is backed by Seek co-founder Paul Bassat​ and billionaire James Packer, and a $200 million fund from Blackbird Ventures, backed by Atlassian co-founder Mike Cannon-Brookes.

Blackbird's fund includes investments from First State Super and Hostplus Super. Given superannuation funds have historically shied away from domestic VC as an asset class, this has been seen as a major breakthrough.

Niki Scevak, who runs Blackbird, is hopeful that the latest wave of VC investment will change attitudes towards – and practices in – the sector, which has long been conflated with more traditional buyout-driven private equity.

"In general, it's true – the Australian venture industry has been a disaster with very few exceptions, and I completely agree with that sentiment," Scevak says of Bell's comments. "But you have a wonderful set of companies that have built great businesses and that's the paradox that excites us."

Scevak says Blackbird typically takes equity stakes of between 5 per cent and 20 per cent in local start-ups. "People broadly are starting realise that VC is about success maximisation, backing companies that succeed wildly, rather than failure minimisation," he says. "That's very different to private equity."

While a scarcity of risk-tolerant capital and onerous terms are inhibiting the growth of Australian technology start-ups, Bell acknowledges that, oddly, this has a silver lining: it is breeding a unique type of battle-hardened entrepreneur.

Take software company Atlassian, the poster child of Australian tech start-ups, which recently filed to list on the Nasdaq in the US and boasts customers such as Elon Musk's electric car maker, Tesla Motors, and finance companies such as HSBC and Visa. "Those guys were brilliant, making the damn thing self-funding," says Bell of the Sydney-based company.

Unlike so many so-called "unicorns" – start-ups with private market valuations of more than $US1 billion ($1.4 billion), which are mostly losing money – Atlassian has been profitable for over a decade and never sought venture funding to grow its business. The founders have since cashed out some of their equity in the business to offshore venture funds, but kept the proceeds.

"Atlassian did the right thing in getting to that point," Bell says. "Silicon Valley is not responsible for its success, because all they did was at the last minute put the capital in."

New tech focus

The path Atlassian has forged looks a viable one in the tough Australian market for funding, though the number of local venture capital funds is increasing.

Last year, Campaign Monitor – an email marketing group which, like Atlassian, supported itself financially for a decade – secured the biggest round of venture funding for an Australian tech firm. It raised $US250 million, but from offshore rather than local investors, in a funding round led by New York-based Insight Venture Partners.

Bell has been visiting Australia since the 1950s, when he was a Fulbright​ scholar at UNSW and taught the nation's first university class in digital systems design, the theory that underpins computers. He and his wife purchased their Sydney residence during a 2005 visit.

In all his time in Australia, he has never seen this country so excited about the technology industry, which was given a big boost when Prime Minister Malcolm Turnbull put innovation at the centre of policy debate and identified it as a driver of economic growth.

"Right now there is a huge interest in tech. I'm not sure exactly what happened," Bell says. "It may have been that the resources boom is not so dominant, and so it's like, 'Gee, we need some other businesses'. I think that may be at the root of it."

Bell has invested in a handful of Australian start-ups, including MyCyberTwin, a Siri-like service, which became Cognea and was sold to IBM last year.

He says the world's envy of Silicon Valley has pushed countries such as Australia to ask why it's not getting a slice of the enormous growth in the technology industry. "There's that envy … and that generates the notion of 'we've really got to step up our game here'."

Bell estimates there are close to 20,000 Australians in Silicon Valley inventing the future. But despite a growing number of success stories, led by Atlassian, Australia is yet to really enter the consciousness of the big venture capital funds typically based on Sandhill Road. "Silicon Valley doesn't even know where Australia is," he jokes.

Bell agrees that valuations for VC-backed start-ups in the US are starting to look frothy, but again, perversely, by being so slow to embrace technology investing, Australia might have dodged a bullet.

"The numbers are so staggering, the danger is that comes back here. But the good news is that, being so tight with the money, they [local entrepreneurs] are not so foolish."

His advice for entrepreneurs it is to think big or don't bother. "You only do it if you have got something really important and you have a vision that what you are doing [can change] the world."